Caleres (CAL), a footwear retailer, is trading lower this morning (-11%) after it reported Q4 (Jan) earnings after the close last night. There is a good chance you have never heard of Caleres, but you probably have heard of Famous Footwear. Caleres, which changed its name from Brown Shoe Company in May 2015, operates 1,000+ Famous Footwear stores throughout the US. It also operates around 170 Naturalizer stores in the US and Canada. CAL has also been seeking to expand its presence in China.
Famous Footwear's average retail price is approximately $45 for footwear with retail price points typically ranging from $25 for shoes up to $210 for boots. Famous Footwear stores are located in strip shopping centers as well as outlet and regional malls in all 50 states.
Caleres also has a Brand Portfolio segment, which sells a wide variety of footwear to many different third party retailers for sale in their stores. Some of its larger wholesale customers include retailers like DSW, TJX (including TJ Maxx and Marshalls), Nordstrom Rack and Ross; department stores such as Nordstrom, Macy's, Bloomingdale's and Dillard's; online retailers such as Nordstrom.com, Zappos.com and Amazon; mass merchandisers such as Walmart and Target; and independent retailers such as QVC and Home Shopping Network. CAL also sells product to a variety of international retail customers.
CAL's business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas season sales. Traditionally, Q3 (Oct) accounts for a substantial portion of CAL's earnings for the year. Its product categories are approximately 63% women's footwear, 23% men's footwear, 9% children's footwear and 5% accessories. This composition has remained relatively constant over the past few years. Approximately 66% of footwear sales are retail sales, primarily through its Famous Footwear stores, Famous.com and other e-commerce websites, while the remaining 34% represented wholesale sales.
Of note, Caleres acquired Allen Edmonds in December 2016 for $255 mln, a maker of men's premium handcrafted leather footwear and accessories. The deal allows Caleres to expand its Brand Portfolio and firmly positions the company in men's footwear. Allen Edmonds sales breakdown in 2016 was: retail stores (45% of brand sales), e-commerce (35%) and wholesale (20%). CAL believes it has acquired one of the great gems in men's footwear. As mentioned above, nearly two-thirds of CAL's sales are for women's footwear so this boosts its exposure to men's footwear.
Turning to the Q4 (Jan) earnings, non-GAAP EPS rose 27% YoY to $0.33, which was a good bit below market expectations. Revenue rose 5.1% year/year to $639.5 mln, which was a bit above market expectations. The company guides only on a full year basis, not on a quarterly basis so analysts are usually a bit in the dark in terms of their quarterly models. This can lead to some volatility around earnings. As for the full year FY18, CAL sees non-GAAP EPS of $2.10-2.20 and revenue of $2.70-2.80 bln, both of which were below market expectations.
Famous Footwear segment sales rose 1.9% YoY to $367.5 mln, same-store-comps +0.3%; Famous.com sales increased nearly 40% to 8.2% of total sales. Brand Portfolio segment sales rose 9.6% YoY to $272.0 mln. Famous Footwear same-store-sales in JanQ were +0.3%, down from the +2.7% comp reported in OctQ, but a decent improvement from the -1.1% comp decline in JulQ. CAL guided to FY18 Famous Footwear same-store-sales up low-single digits and Brand Portfolio sales up in the high-teens.
CAL says that, despite a promotional and challenging retail environment in JanQ, it maintained a consistent approach of managing the areas under its control while continuing to rapidly respond to changing consumer shopping behaviors. While CAL is confident about the long-term outlook for its footwear portfolio, the company is taking a cautious view of the near-term as it expects to see continued pressure in retail based on the current environment. This is why they are guiding the full year below expectations.
In sum, this was a tough quarter for CAL. It seems like they are also being hurt by online footwear retailers as more and more consumers seem more willing to purchase shoes online. The stock rallied after CAL's OctQ report but the JanQ appears to be a bit of a setback. We will see if results can improve later this year. It's a tough environment right now for retailers generally and for footwear retailers, in particular.